Yahoo!'s Q1 a disappointment

Earnings below expectations; shares slide after hours

Shares of Yahoo! Inc. tumbled in after-hours trading Tuesday after the company issued a quarterly earnings report that again disappointed investors.

Yahoo! posted first-quarter net income of $142 million, down from $160 million a year ago. On a per-share basis, Yahoo! earned a dime, while analysts expected 11 cents.

Revenue rose 7% to $1.7 billion, while revenue minus the share Yahoo! pays to its advertising partners — the more closely examined metric — was up 9% to $1.18 billion, just shy of analysts' expectations of $1.21 billion.

Yahoo! which was up 1.5% during the regular session, dropped as much as 8% after hours once it reported results. The stock was off $2.54 late Tuesday to $29.57, putting it below where it traded a year ago.

CEO Terry Semel and CFO Susan Decker were upbeat during a conference call with analysts, stressing important new developments, including rival Google Inc's. recent $3.1 billion acquisition of DoubleClick, a player in the online display advertising business that Yahoo! dominates.

"It's a good validation of our strategy for a few years," Semel said.

Just as Google is making inroads into display ads, Yahoo! could be closing the gap in search advertising, where Google is the giant.

Project Panama, Yahoo!'s new way of delivering search ads that was introduced in February in the U.S., is getting positive reviews, and Semel said it began its rollout in Japan and will expand to Europe and South Korea this quarter.

Semel also announced a recent expansion of a partnership struck with eBay a year ago. Soon, eBay's PayPal shopping icon will appear with Yahoo! search advertising results, a salvo directed at Google Checkout.

Decker said that Yahoo! increased its paid users by 24% year-over-year to 16.5 million people, and Semel stressed relationships with traditional media.

Yahoo! recently struck an exclusive deal with Viacom Inc., for example, to provide search services to dozens of its Web sites, including MTV.com and ComedyCentral.com. He also touted Yahoo!'s relationship with the Internet video venture that News Corp. and NBC Universal will launch in the summer that takes aim at Google's YouTube.

Goldman Sachs analyst Anthony Noto, commenting on Yahoo!'s subpar financials, told clients Tuesday, "The stock should be weak as results were well below heightened expectations and the growth does not justify the value."